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Finance Flashcards

Chapter 9, Corporate Finance

Equity securities are certificates of ownership of a corporation. True
A large number of investors in equities actually own through pension or retirement funds. True
Companies raise capital in secondary markets by issuing new securities. False
The common stockholders of a company have unlimited liability. False
Preferred stockholders are not guaranteed any dividend payments and have the lowest-priority claim on the firm’s assets in the event of bankruptcy. False
In the general dividend-valuation model, the price of a share of stock is the present value of all expected future dividends. True
For a company that has no growth, dividends stay constant over time. True
The constant-growth stock has dividends growing at a constant rate over time. True
Whenever the constant-growth rate for dividends exceeds the required rate of return on the common stock, the constant-growth model provides invalid solutions. True
The bond valuation model can be used to value perpetual preferred stocks. False
Which of the following statements is true about secondary markets? In secondary markets, outstanding shares of stock are bought and sold among investors.
Which of the following statements is NOT true about common stock? Owners of common stock are guaranteed dividend payments by the firm.
Which of the following statements is true about common stock? Owners of common stock have the lowest-priority claim on the firm’s assets in the event of bankruptcy.
Which of the following statements is true? In order for the constant growth dividend model to properly value a firm’s common stock, R must be greater than g.
Which of the following statements about preferred stock is FALSE? Failure to pay dividends on preferred stocks will result in a default.
The dealer’s selling price of a given stock is also known as the ask price. True
Which of the following is a characteristic of common stock? Limited liability for owners
The value of a firm’s equity is calculated as the sum of the present value of all expected future cash flows. True
The bid price is the price that a dealer pays for a security. True
Preferred stock is legally a form of debt of a corporation. False
For the constant growth rate dividend model to work, which of the following assumptions must hold? The growth rate must be less than the required rate of return.
Growth stocks typically pay little or no dividends. True

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